Prime Highlights:
- Tata Elxsi stock surged 8.5% after JPMorgan upgraded its rating from “underweight” to “neutral” and raised the price target to ₹4,800.
- The brokerage upgraded revenue and earnings estimates for FY26-28, driven by stronger demand in Europe and the auto sector.
Key Facts:
- Tata Elxsi’s revenue growth is projected at 11% annually, slightly below peer KPIT Tech’s 14%, while the stock has risen 14.7% over the past month.
- The company’s auto-related revenues account for 55% of total business, and JPMorgan expects limited downside due to improving market demand.
Background:
Shares of Tata Elxsi Ltd. soared on Wednesday, January 7, gaining as much as 8.5% following a rating upgrade by global brokerage firm JPMorgan. The firm revised its stance on the stock from “underweight” to “neutral”, while also raising the price target from ₹4,000 to ₹4,800.
Despite the upgrade, the revised price target still suggests a potential downside of 17% from current levels, reflecting JPMorgan’s cautious optimism. The brokerage cited strengthening demand in engineering, research, and development (ER&D), particularly in Europe, as a key driver behind the revision.
JPMorgan also upgraded revenue estimates for FY26-28 by 1% to 4% and profit margins by 10 to 100 basis points, resulting in earnings per share (EPS) upgrades of 1% to 8%. The firm expects Tata Elxsi to benefit from recovering auto demand, although auto-related revenues account for 55% of the company’s business, lower than peers such as Tata Technologies and KPIT Tech, which derive 82% and 100% of their revenues from the automotive sector, respectively.
Analysts noted that Tata Elxsi’s valuation remains at a premium, trading at 34 times earnings, compared to 43 times at Tata Elxsi’s peers. Revenue is expected to grow at 11% annually, slightly lower than KPIT Tech’s 14%. These factors led JPMorgan to keep a neutral rating, even with the earnings upgrades.
Tata Elxsi has lagged behind the Nifty IT index, falling 19% in the past year compared to the index’s 14% drop. However, the stock has recovered recently, rising 14.7% in the last month. On Wednesday, shares touched an intraday high of ₹5,799.
JPMorgan highlighted that while further upside may be limited, the combination of earnings upgrades and improving demand is likely to cap downside risks in the near term. The brokerage also increased its target price-to-earnings multiple to 32 times from 28 times, reflecting improved earnings expectations.
Investors are keeping an eye on Tata Elxsi as demand in its main European markets steadies, and the stock’s performance in the coming months will depend on growth in ER&D services and the recovery of the auto industry.
